TCS revenue to slow sharply in FY26, says Elara as it downgrades stock and cuts target price
is set for weaker revenue growth in FY26 compared with last year, as persistent macroeconomic pressures, delayed project ramp-ups, and subdued
discretionary spending
weigh on demand, brokerage
Elara Capital
said while downgrading the stock to 'accumulate' from 'buy', and trimming its price target.
Elara slashed its target price on TCS to Rs 3,770 from Rs 3,970, citing broad-based weakness across key markets and verticals.
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The brokerage cited a combination of sectoral and macroeconomic pressures for its downgrade. Elara pointed to sustained scrutiny of discretionary spending, the impact of a new tariff order on sectors such as pharmaceuticals, reduced energy-sector budgets due to policy shifts and geopolitical tensions, and subdued BFSI demand in Europe and the UK.
TCS reported weaker-than-expected Q1 FY26 revenue, declining 0.6% quarter-on-quarter in dollar terms and 3.3% on a constant currency basis, while year-on-year revenue slipped 1.1%. In rupee terms, revenue was down 1.6% from the previous quarter.
North America saw a 2.7% annual drop, while the UK and continental Europe recorded constant-currency declines of 1.3% and 3.1%, respectively. The sharpest fall came from the India business, which plunged 31.4% sequentially and 23.5% year-on-year in dollar terms, reducing its contribution to overall revenue to 5.8% from 8.4% in the prior quarter.
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Vertical-wise, Consumer, Life Sciences, Manufacturing, and Communications fell by 3–9% YoY (in constant currency), while BFSI and Tech showed modest growth. TCS's total contract value (TCV) stood at $9.4 billion for Q1FY26, down 23% QoQ but up 13% YoY, within its guidance of $7–9 billion.
Revenue and margin outlook
'Given weak Q1 and seasonal weakness in H2, we expect revenue growth in FY26 to be much lower than in FY25,' Elara said, cutting its FY26E, FY27E, and FY28E revenue estimates. It now forecasts a ~1% revenue drop in FY26, against its earlier estimate of 2% growth, while projecting moderate recovery with ~3.5% growth in FY27.
EBIT margin expanded 30 basis points QoQ to 24.5%, aided by a 73% reduction in costs related to the BSNL deal, which fell to about 1% of sales from over 4% in previous quarters. However, Elara trimmed its FY26E and FY27E EBIT margin assumptions by 50–60 basis points, citing 'a rise in attrition and possible further pressure on margin due to the new BSNL deal.'
TCS is yet to decide on wage hikes for FY26 amid an uncertain demand environment. Last-twelve-month attrition stood at 13.8%, above its comfort range of 11–13%.
Sector backdrop and stock reaction
The downgrade comes as India's IT sector faces continued pressure, with large-cap tech stocks sliding on Monday. TCS shares fell 1.7% to Rs 3,081.60 after announcing a 2% cut in its global workforce, around 12,000 employees, due to weak discretionary spending and macro headwinds. Wipro fell 3.5% to Rs 250.05, Infosys lost 2.2% to Rs 1,482.50, while HCL Tech and Tech Mahindra also ended lower. The Nifty IT index dropped 1.6%, extending its decline to 24% from its recent peak.
Despite near-term challenges, TCS highlighted strong momentum in AI-led services during Q1FY26, with over 114,000 employees trained in advanced AI skills.
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(
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: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
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